Biggest Australian Iron Ore State Increases Price Forecast 12%

Western Australia, the largest iron-ore producing state, lifted its price forecast 12 percent after steel demand rose in China, the top buyer.

Iron ore will be at $47.70 a metric ton in fiscal 2017, the state government said in budget papers Thursday. That’s higher than its $42.50 forecast in December. It closed Wednesday at $55.57, according to Metal Bulletin Ltd.

The commodity has confounded forecasters through 2016, rising 28 percent to rebound from three straight annual declines on an improving outlook in China and stronger steel demand from the country’s infrastructure and property sectors. Decisions by Rio Tinto Group and BHP Billiton Ltd. to revise production outlooks down also helped market sentiment.

“Sustained growth in demand for steel in China is considered unlikely over the medium-term,” the government said in budget papers. “Further headwinds will likely come from the ongoing process of structural change in China where household consumption, which is not very steel-intensive, becomes relatively more important for growth.”

Increasing production from the top three producers, Rio, Vale SA and BHP, will continue to pressure the price, the government said. Growth in supply will outpace growth in demand over the medium-term, it said. The market will remain in surplus until 2018-19 and return to balance the following year, it said.